##### Table of Contents



FORM 10-Q
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the
quarterly period ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from

to
 Commission
file number 000-31579
 HYDRIL COMPANY
  DELAWARE
    
    95-2777268(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 3300 North Sam Houston Parkway East Houston, Texas
    
    77032-3411(Address of principal executive offices)
    
    (Zip Code)
 (281) 449-2000
  þ o
 þ o




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HYDRIL COMPANY
 INDEX
PART IFINANCIAL INFORMATION
 PageItem 1. Financial StatementsConsolidated Balance SheetsJune 30, 2005 (unaudited) and December 31, 2004
    
    
    3Unaudited Consolidated Statements of OperationsFor the Three and Six Months Ended June 30, 2005 and 2004
    
    
    5Unaudited Consolidated Statements of Cash FlowsFor the Three and Six Months Ended June 30, 2005 and 2004
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    36PART IIOTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 6. Exhibits
    
    
    37Form of Restricted Stock Unit AgreementCertification of CEO pursuant to Rule 13a-14aCertification of CFO pursuant to Rule 13a-14aCertification of CEO pursuant to Section 906Certification of CFO pursuant to Section 906




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HYDRIL COMPANY
 
 Part I, Item 1: Consolidated Balance Sheets
 June 30,
    
    December 31,2005
    
    2004(unaudited)CURRENT ASSETS:Cash and cash equivalents
    
    $
    57,616
    
    
    $
    51,733Investments and marketable securities
    
    
    94,129
    
    
    
    69,365Receivables:Trade, less allowance for doubtful
accounts: 2005, $1,496; 2004, $1,214
    
    
    61,184
    
    
    
    56,053Contract costs and estimated earnings in excess of billings
    
    
    1,867
    
    
    
    4,860Other
    
    
    1,123
    
    
    
    1,528Total receivables
    
    
    64,174
    
    
    
    62,441Inventories:Finished goods
    
    
    22,251
    
    
    
    21,179Work-in-process
    
    
    15,424
    
    
    
    8,854Raw materials
    
    
    7,691
    
    
    
    4,787Total inventories
    
    
    45,366
    
    
    
    34,820Deferred tax asset
    
    
    5,040
    
    
    
    8,794Other current assets
    
    
    2,937
    
    
    
    3,422Total current assets
    
    
    269,262
    
    
    
    230,575PROPERTY:Land and improvements
    
    
    20,431
    
    
    
    21,314Buildings and equipment
    
    
    52,499
    
    
    
    54,718Machinery and equipment
    
    
    171,934
    
    
    
    162,785Construction-in-progress
    
    
    3,105
    
    
    
    5,710Total
    
    
    247,969
    
    
    
    244,527Less accumulated depreciation and amortization
    
    
    (146,533
    )
    
    
    (142,159
    )Property, net
    
    
    101,436
    
    
    
    102,368OTHER LONG-TERM ASSETS:Investments
    
    
    
    
    
    
    3,501Deferred tax asset
    
    
    588
    
    
    
    588Other assets
    
    
    13,414
    
    
    
    6,614TOTAL
    
    $
    384,700
    
    
    $
    343,646
  3




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##### Table of Contents



HYDRIL
COMPANY
 Part I, Item 1: Consolidated Balance Sheets
 June 30,
    
    December, 31,2005
    
    2004(unaudited)CURRENT LIABILITIES:Accounts payable
    
    $
    25,131
    
    
    $
    23,292Billings in excess of contract costs and estimated earnings
    
    
    191
    
    
    
    342Accrued liabilities
    
    
    23,439
    
    
    
    24,817Income taxes payable
    
    
    5,850
    
    
    
    5,902Total current liabilities
    
    
    54,611
    
    
    
    54,353LONG-TERM LIABILITIES:Deferred tax liability
    
    
    392
    
    
    
    410Other
    
    
    15,101
    
    
    
    14,100Total long-term liabilities
    
    
    15,493
    
    
    
    14,510CONTINGENCIES (Note 4)STOCKHOLDERS EQUITY:Capital stock:Preferred stock-authorized, 10,000,000 shares of $1 par
value; none issued or outstanding
    
    
    
    
    
    
    Common stock-authorized, 75,000,000 shares of $.50 par
value; 19,589,813 and 18,651,458 shares issued and
outstanding at June 30, 2005 and December 31, 2004,
respectively
    
    
    9,795
    
    
    
    9,326Class B common stock-authorized, 32,000,000 shares of
$.50 par value; 3,916,480 and 4,620,130 shares issued
and outstanding at June 30, 2005 and December 31, 2004,
respectively
    
    
    1,958
    
    
    
    2,310Additional paid in capital
    
    
    73,918
    
    
    
    61,810Retained earnings
    
    
    238,807
    
    
    
    206,546Deferred compensation
    
    
    (7,998
    )
    
    
    (3,325
    )Accumulated other comprehensive loss
    
    
    (1,884
    )
    
    
    (1,884
    )Total stockholders equity
    
    
    314,596
    
    
    
    274,783TOTAL
    
    $
    384,700
    
    
    $
    343,646
  4




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HYDRIL
COMPANY
 
 Part I, Item 1: Unaudited Consolidated Statements of Operations
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004REVENUE
    
    $
    91,607
    
    
    $
    62,905
    
    
    $
    170,424
    
    
    $
    120,402COST OF SALES
    
    
    51,142
    
    
    
    36,834
    
    
    
    94,552
    
    
    
    71,981GROSS PROFIT
    
    
    40,465
    
    
    
    26,071
    
    
    
    75,872
    
    
    
    48,421SELLING, GENERAL &
ADMINISTRATION EXPENSES:Engineering
    
    
    3,173
    
    
    
    2,871
    
    
    
    6,008
    
    
    
    5,788Sales and marketing
    
    
    5,598
    
    
    
    4,582
    
    
    
    10,432
    
    
    
    8,697General and administration
    
    
    6,697
    
    
    
    5,250
    
    
    
    12,336
    
    
    
    10,111Total
    
    
    15,468
    
    
    
    12,703
    
    
    
    28,776
    
    
    
    24,596OPERATING INCOME
    
    
    24,997
    
    
    
    13,368
    
    
    
    47,096
    
    
    
    23,825INTEREST INCOME
    
    
    943
    
    
    
    170
    
    
    
    1,604
    
    
    
    354OTHER INCOME (EXPENSE)
    
    
    (146
    )
    
    
    132
    
    
    
    (253
    )
    
    
    27INCOME BEFORE INCOME
TAXES
    
    
    25,794
    
    
    
    13,670
    
    
    
    48,447
    
    
    
    24,206PROVISION FOR INCOME TAXES
    
    
    8,545
    
    
    
    4,647
    
    
    
    16,186
    
    
    
    7,309NET INCOME
    
    $
    17,249
    
    
    $
    9,023
    
    
    $
    32,261
    
    
    $
    16,897NET INCOME PER SHARE:BASIC
    
    $
    0.74
    
    
    $
    0.39
    
    
    $
    1.38
    
    
    $
    0.74DILUTED
    
    $
    0.72
    
    
    $
    0.39
    
    
    $
    1.35
    
    
    $
    0.73WEIGHTED AVERAGE SHARES
OUTSTANDING:BASIC
    
    
    23,455,850
    
    
    
    22,913,096
    
    
    
    23,408,931
    
    
    
    22,880,553DILUTED
    
    
    23,996,733
    
    
    
    23,258,520
    
    
    
    23,942,291
    
    
    
    23,190,522
  5




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HYDRIL COMPANY
 
 Part I, Item 1: Unaudited Consolidated Statements of Cash Flows
 Six Months EndedJune 30,2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    32,261
    
    
    $
    16,897Adjustments to reconcile net income to net cash provided by
operating activities:Amortization of deferred compensation
    
    
    615
    
    
    
    238Depreciation and amortization
    
    
    6,640
    
    
    
    6,205Deferred income taxes
    
    
    3,885
    
    
    
    685Provision for doubtful accounts
    
    
    268
    
    
    
    (85
    )Change in operating assets and liabilities:Receivables
    
    
    (4,994
    )
    
    
    (4,646
    )Contract costs and estimated earnings in excess of billings
    
    
    2,993
    
    
    
    285Inventories
    
    
    (10,546
    )
    
    
    2,689Other current and noncurrent assets
    
    
    3,171
    
    
    
    489Accounts payable
    
    
    1,839
    
    
    
    252Billings in excess of contract costs and estimated earnings
    
    
    (151
    )
    
    
    222Accrued liabilities
    
    
    (1,378
    )
    
    
    568Income taxes payable
    
    
    (52
    )
    
    
    (226
    )Other long-term liabilities
    
    
    1,001
    
    
    
    510Net cash provided by operating activities
    
    
    35,552
    
    
    
    24,083NET CASH FROM INVESTING ACTIVITIES:Purchase of held-to-maturity investments
    
    
    (8,288
    )
    
    
    (11,631
    )Proceeds from held-to-maturity investments
    
    
    19,486
    
    
    
    5,958Purchase of available for sale investments
    
    
    (59,785
    )
    
    
    (6,000
    )Proceeds from available for sale investments
    
    
    27,324
    
    
    
    Capital expenditures
    
    
    (6,764
    )
    
    
    (2,986
    )Purchase of a product line
    
    
    (3,640
    )
    
    
    Other, net
    
    
    (2,506
    )
    
    
    Net cash used in investing activities
    
    
    (34,173
    )
    
    
    (14,659
    )NET CASH FROM FINANCING ACTIVITIES:Net proceeds from issuance of common stock
    
    
    124
    
    
    
    126Net proceeds from exercise of stock options
    
    
    4,380
    
    
    
    2,154Net cash provided by financing activities
    
    
    4,504
    
    
    
    2,280NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    5,883
    
    
    
    11,704CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    51,733
    
    
    
    48,214CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    57,616
    
    
    $
    59,918SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    
    
    
    $
    Income taxes paid:Domestic
    
    
    1,375
    
    
    
    2,530Foreign
    
    
    8,107
    
    
    
    3,565
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Hydril Company
 
 Part I, Item 1: Notes to Unaudited Consolidated Financial Statements
 Note 1  BASIS OF PRESENTATION
 Principles
of Consolidation
 Use
of Estimates
 Reclassifications
 Interim
Presentation
 Investments
  7




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Stock Based Compensation
  (in thousands except per share data)
    
    Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income, as reported
    
    $
    17,249
    
    
    $
    9,023
    
    
    $
    32,261
    
    
    $
    16,897Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all awards, net of tax
    
    
    (434
    )
    
    
    (534
    )
    
    
    (916
    )
    
    
    (883
    )Proforma net income
    
    $
    16,815
    
    
    $
    8,489
    
    
    $
    31,345
    
    
    $
    16,014Earnings per share:Basic-as reported
    
    $
    0.74
    
    
    $
    0.39
    
    
    $
    1.38
    
    
    $
    0.74Basic-proforma
    
    $
    0.72
    
    
    $
    0.37
    
    
    $
    1.34
    
    
    $
    0.70Diluted-as reported
    
    $
    0.72
    
    
    $
    0.39
    
    
    $
    1.35
    
    
    $
    0.73Diluted-proforma
    
    $
    0.70
    
    
    $
    0.36
    
    
    $
    1.31
    
    
    $
    0.69
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Note 2  Product Warranty Liability
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Beginning balance
    
    $
    2,028
    
    
    $
    2,178
    
    
    $
    2,341
    
    
    $
    2,192Claims paid
    
    
    (179
    )
    
    
    (129
    )
    
    
    (274
    )
    
    
    (294
    )Warranty activity charged (credited)to expense
    
    
    75
    
    
    
    
    
    
    
    (143
    )
    
    
    151Ending balance
    
    $
    1,924
    
    
    $
    2,049
    
    
    $
    1,924
    
    
    $
    2,049
 Note 3  LONG-TERM CONTRACTS
  (in thousands)
    
    June 30, 2005
    
    December 31, 2004Costs and estimated earnings on
uncompleted contracts
    
    $
    5,098
    
    
    $
    23,860Less: billings to date
    
    
    (3,422
    )
    
    
    (19,342
    )Excess of costs and
estimated earnings over billings
    
    $
    1,676
    
    
    $
    4,518Included in the accompanying balance
sheets under the following captions:Contract costs and estimated earnings
in excess of billings
    
    $
    1,867
    
    
    $
    4,860Billings in excess of contract costs
and estimated earnings
    
    
    (191
    )
    
    
    (342
    )Total
    
    $
    1,676
    
    
    $
    4,518
 10




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Note 4  CONTINGENCIES
   Note 5 LINES OF CREDIT
   Note 6  INCOME TAXES
  Note 7  EARNINGS PER SHARE
  11




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Weighted
    
    Net(in thousands except per share data)
    
    Net
    
    Average
    
    IncomeIncome
    
    Shares
    
    Per ShareThree months ended June 30, 2005Basic net income
    
    $
    17,249
    
    
    
    23,456
    
    
    $
    0.74Effect of dilutive securities
    
    
    
    
    
    
    541
    
    
    
    Diluted net income
    
    $
    17,249
    
    
    
    23,997
    
    
    $
    0.72Three months ended June 30, 2004Basic net income
    
    $
    9,023
    
    
    
    22,913
    
    
    $
    0.39Effect of dilutive securities
    
    
    
    
    
    
    345
    
    
    
    Diluted net income
    
    $
    9,023
    
    
    
    23,258
    
    
    $
    0.39Six months ended June 30, 2005Basic net income
    
    $
    32,261
    
    
    
    23,409
    
    
    $
    1.38Effect of dilutive securities
    
    
    
    
    
    
    533
    
    
    
    Diluted net income
    
    $
    32,261
    
    
    
    23,942
    
    
    $
    1.35Six months ended June 30, 2004Basic net income
    
    $
    16,897
    
    
    
    22,881
    
    
    $
    0.74Effect of dilutive securities
    
    
    
    
    
    
    310
    
    
    
    Diluted net income
    
    $
    16,897
    
    
    
    23,191
    
    
    $
    0.73
 Note 8  EMPLOYEE BENEFITS
  12




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Post-RetirementHealth and LifeDefined Benefit Plan
    
    BenefitsThree Months
    
    Three Months(in thousands)
    
    Ended June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Components of net periodic benefit cost
Service cost
    
    $
    
    
    
    $
    
    
    
    $
    14
    
    
    $
    13Interest cost
    
    
    474
    
    
    
    457
    
    
    
    83
    
    
    
    87Expected return on plan assets
    
    
    (461
    )
    
    
    (440
    )
    
    
    
    
    
    
    Amortization of prior service cost (benefit)
    
    
    4
    
    
    
    4
    
    
    
    (122
    )
    
    
    (122
    )Amortization of net loss
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    Net periodic cost
    
    $
    17
    
    
    $
    26
    
    
    $
    (25
    )
    
    $
    (22
    )
 Post-RetirementHealth and LifeDefined Benefit Plan
    
    Benefits(in thousands)
    
    Six Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Components of net periodic benefit cost
Service cost
    
    $
    
    
    
    $
    
    
    
    $
    28
    
    
    $
    26Interest cost
    
    
    947
    
    
    
    914
    
    
    
    166
    
    
    
    174Expected return on plan assets
    
    
    (921
    )
    
    
    (880
    )
    
    
    
    
    
    
    Amortization of prior service cost (benefit)
    
    
    8
    
    
    
    8
    
    
    
    (244
    )
    
    
    (244
    )Amortization of net loss
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    Net periodic cost
    
    $
    34
    
    
    $
    52
    
    
    $
    (50
    )
    
    $
    (44
    )
 Note 9  SEGMENT AND RELATED INFORMATION
    13




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Three Months Ended
    
    Six Months Ended(in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004RevenuePremium Connection
    
    $
    59,904
    
    
    $
    39,564
    
    
    $
    110,412
    
    
    $
    72,989Pressure Control
    
    
    31,703
    
    
    
    23,341
    
    
    
    60,012
    
    
    
    47,413Total
    
    $
    91,607
    
    
    $
    62,905
    
    
    $
    170,424
    
    
    $
    120,402Operating income (loss)Premium Connection
    
    $
    19,891
    
    
    $
    12,778
    
    
    $
    38,296
    
    
    $
    22,175Pressure Control
    
    
    9,572
    
    
    
    4,491
    
    
    
    17,378
    
    
    
    9,277Corporate Administration
    
    
    (4,466
    )
    
    
    (3,901
    )
    
    
    (8,578
    )
    
    
    (7,627
    )Total
    
    $
    24,997
    
    
    $
    13,368
    
    
    $
    47,096
    
    
    $
    23,825Depreciation and
amortization expensePremium Connection
    
    $
    2,160
    
    
    $
    1,901
    
    
    $
    4,119
    
    
    $
    3,806Pressure Control
    
    
    755
    
    
    
    723
    
    
    
    1,515
    
    
    
    1,443Corporate Administration
    
    
    485
    
    
    
    475
    
    
    
    1,006
    
    
    
    956Total
    
    $
    3,400
    
    
    $
    3,099
    
    
    $
    6,640
    
    
    $
    6,205Capital expendituresPremium Connection
    
    $
    2,232
    
    
    $
    1,169
    
    
    $
    5,570
    
    
    $
    1,955Pressure Control
    
    
    430
    
    
    
    273
    
    
    
    1,016
    
    
    
    772Corporate Administration
    
    
    38
    
    
    
    142
    
    
    
    178
    
    
    
    259Total
    
    $
    2,700
    
    
    $
    1,584
    
    
    $
    6,764
    
    
    $
    2,986
 Note 10  RECENT ACCOUNTING PROUNOUNCEMENTS
  15




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Part I, Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
  OVERVIEW
   Premium Connections
  17




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Average
    
    AverageUnited States
    
    Gulf Of Mexico
    
    AverageRig Count
    
    Rigs
    
    InternationalOver 15,000 ft (1)
    
    Under Contract (2)
    
    Rig Count (3)Quarter
    
    Number
    
    Number
    
    NumberEnded
    
    of Rigs
    
    of Rigs
    
    of Rigs06/30/04
    
    
    164
    
    
    
    116
    
    
    
    83709/30/04
    
    
    169
    
    
    
    119
    
    
    
    84612/31/04
    
    
    175
    
    
    
    123
    
    
    
    86203/31/05
    
    
    181
    
    
    
    131
    
    
    
    87606/30/05
    
    
    186
    
    
    
    131
    
    
    
    916
 
 (1)
    
    Source: Average rig count calculated by Hydril using weekly data
published by Smith International.(2)
    
    Source: Average rigs under contract calculated by Hydril using
weekly data published by ODS-Petrodata Group.(3)
    
    Source: Average rig count calculated by Hydril using monthly
data published by Baker Hughes Incorporated. The international rig count
includes data for Europe, the Middle East, Africa, Latin America and Asia
Pacific, and excludes data for Canada and the United States. Pressure Control
  18




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Average
    
    AverageWorldwide Offshore
    
    United States TotalRig Count (1)
    
    Rig Count (2)Quarter
    
    Number
    
    NumberEnded
    
    of Rigs
    
    of Rigs06/30/04
    
    
    349
    
    
    
    1,16409/30/04
    
    
    333
    
    
    
    1,22912/31/04
    
    
    351
    
    
    
    1,24903/31/05
    
    
    350
    
    
    
    1,27906/30/05
    
    
    374
    
    
    
    1,336
 
 (1)
    
    Source: Average rig count calculated by Hydril using weekly data
for the United States and Canada, and monthly data for the international
regions, as published by Baker Hughes Incorporated. The worldwide offshore rig
count includes data for Europe, the Middle East, Africa, Latin America, Asia
Pacific, the United States and Canada, and excludes the former Soviet Union and
China.(2)
    
    Source: Average rig count calculated by Hydril using weekly data
published by Baker Hughes Incorporated. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004
 Revenue
  19




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Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
 Revenue
  20




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Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  Provision for Income Taxes
  21




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   Operating Activities
  Investing Activities
   Credit Facilities
  22




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##### Table of Contents



Backlog
 .
 CRITICAL ACCOUNTING ESTIMATES
  RISK FACTORS
  A material or extended decline in expenditures by the oil and gas industry, due to a decline
in oil and gas prices or other economic factors, would reduce our revenue.
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
    
    the level of worldwide oil and gas exploration and production activity;
    
    worldwide demand for energy, which is affected by worldwide economic conditions;
    
    the policies of the Organization of Petroleum Exporting Countries, or OPEC;
    
    significant decreases or increases in the production of oil or gas from countries due to
war or civil unrest, such as in Iraq, Nigeria and Venezuela;
    
    the cost of producing oil and gas;
    
    interest rates and the cost of capital;
    
    technological advances affecting hydrocarbon consumption, particularly oil and gas;
    
    environmental regulation;
    
    level of oil and gas inventories in storage;
    
    tax policies;
    
    policies of national governments; and
    
    war, civil disturbances and political instability.
  24




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##### Table of Contents



We rely on a few distributors for sales of our premium connections in the United States and
Canada; a loss of one or more of our distributors or a change in the method of distribution could
adversely affect our ability to sell our products.
    The intense competition in our industry could result in reduced profitability and loss of
market share for us.
  
    
    availability and capabilities of the equipment;
    
    ability to meet the customers delivery schedule;
    
    price and indexes affecting price;
    
    pipe costs and their impact on contract prices;
    
    reputation;
    
    experience;
    
    safety record; and
    
    technology.
  25




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##### Table of Contents



Our international operations may experience severe interruptions due to political, economic
and other risks.
  26




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##### Table of Contents




    
    political instability, civil disturbances, war and terrorism;
    
    nationalization, expropriation, and nullification of contracts;
    
    changes in regulations and labor practices;
    
    changes in currency exchange rates and potential devaluations;
    
    changes in currency restrictions which could limit the repatriations of profits or capital;
    
    restrictive actions by local governments;
    
    seizure of plant and equipment; and
    
    changes in foreign tax laws.
  The level and pricing of tubular goods imported into the United States and Canada could
adversely affect demand for our products and our results of operations.
  
    
    United States and worldwide demand for tubular goods;
    
    the trade practices of and government subsidies to foreign producers; and
    
    the presence or absence of antidumping and countervailing duty orders.
  27




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##### Table of Contents



We may lose premium connection business to international and domestic competitors who produce
their own pipe, as well as other new entrants or lose business due to limitations on the
availability of pipe for threading.
  28




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##### Table of Contents



The occurrence or threat of terrorist attacks could have an adverse affect on our results and
growth prospects, as well as on our ability to access capital and obtain adequate insurance.
  The consolidation or loss of end-users of our products could adversely affect demand for our
products and services and reduce our revenue.
   29




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##### Table of Contents



Overcapacity in the pressure control industry and high fixed costs could exacerbate the level
of price competition for our products, adversely affecting our business and revenue.
  30




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##### Table of Contents



If we do not develop new technologies and products that are commercially successful, our
revenue may decline or we may be required to write-off any capitalized investment.
  
    
    design and commercially produce products that meet the needs of our customers;
    
    successfully market new products; and
    
    obtain and maintain patent protection.
    Limitations on our ability to protect our intellectual property rights could cause a loss in
revenue and any competitive advantage we hold.
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##### Table of Contents



The loss of any member of our senior management and other key employees may adversely affect
our results of operations.
 .
 Our quarterly sales and earnings may vary significantly, which could cause our stock price to
fluctuate.
  
    
    the level of drilling activity worldwide, as well as the particular geographic focus of
the activity;
    
    the variability of customer orders, which are particularly unpredictable in international
markets;
    
    the mix of our products sold and the margins on those products;
 32




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##### Table of Contents




    
    new products offered and sold by us or our competitors;
    
    weather conditions that can affect our customers operations;
    
    changes in commodity prices and currency exchange rates, which in some cases affect the
prices for our products;
    
    pipe costs and their impact on contract prices;
    
    the level of long-term capital equipment project orders which varies with the level of
new rig construction and refurbishment activity in the industry;
    
    changes in drilling and exploration plans which can be particularly volatile in
international markets; and
    
    delays in the delivery of finished products to customers due to limitations on the
availability of marine transportation, particularly internationally.
  We could be subject to substantial liability claims, which would adversely affect our results
and financial condition.
   If we are unable to attract and retain skilled labor, the results of our manufacturing and
services activities will be adversely affected.
  33




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##### Table of Contents



Changes in regulation or environmental compliance costs and liabilities could have a material
adverse effect on our results and financial condition.
  We could become subject to claims related to the release of hazardous substances which could
adversely affect our results and financial condition.
  34




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##### Table of Contents



Liability to customers under warranties may materially and adversely affect our earnings.
  We may lose money on fixed price contracts, and such contracts could cause our quarterly
revenue and earnings to fluctuate significantly.
  
    
    changes in cost, estimates or expected production time;
    
    engineering design changes;
    
    changes requested by customers; and
    
    changes in the availability and cost of labor and material.
  Excess cash is invested in marketable securities which may subject us to potential losses.
  35




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##### Table of Contents



Part I, Item 3: Quantitative and Qualitative Disclosures About Market Risk
  
 Part I, Item 4: Controls and Procedures
  
 Part II, Item 4: Submission of Matters to a vote of Security Holders
  BrokerNon-Proposals:
    
    For
    
    Against
    
    Withheld
    
    Abstain
    
    VotesElection of DirectorsGordon Hall
    
    
    58,481,112
    
    
    
    
    
    
    
    522,244
    
    
    
    
    
    
    
    Richard C. Seaver
    
    
    58,454,766
    
    
    
    
    
    
    
    548,590
    
    
    
    
    
    
    
    T. Don Stacy
    
    
    58,438,152
    
    
    
    
    
    
    
    565,204
    
    
    
    
    
    
    
    Approval of the Hydril
Company 2005 Incentive
Plan
    
    
    55,575,777
    
    
    
    1,914,187
    
    
    
    
    
    
    
    55,060
    
    
    
    Approval of Appointment
of Deloitte & Touche LLP
as Independent Registered
Public Accounting Firm
    
    
    58,593,890
    
    
    
    360,494
    
    
    
    
    
    
    
    48,972
    
    
    
    
 36




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##### Table of Contents



Part II, Item 6: Exhibits
  10.1
    
    
    
    Form of Restricted Stock Unit Agreement (Performance-Based) for Employees
under the Hydril Company 2000 Incentive Plan.10.2*
    
    
    
    Hydril Company 2005 Incentive Plan (incorporated by reference to Annex A
to our Definitive Proxy Statement on Schedule 14A filed with the Securities and
Exchange Commission on April 8, 2005).10.3*
    
    
    
    Form of Deferred Share Unit Award Agreement between Hydril and
Non-employee Directors (incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed with the Securities and Exchange Commission on May
23, 2005).10.4*
    
    
    
    Description of Changes in Director Compensation (incorporated by reference
to the Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 23, 2005).10.5*
    
    
    
    Form of Change in Control Renewal Agreement for Executive Officers
(through December 31, 2005) (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 1, 2005).31.1
    
    
    
    Certification by Christopher T. Seaver, Chief Executive Officer, pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 1934.31.2
    
    
    
    Certification by Chris D. North, Chief Financial Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.32.1
    
    
    
    Certification by Christopher T. Seaver, Chief Executive Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and (b) of Section
1350, Chapter 63 of Title 18, United States Code).32.2
    
    
    
    Certification by Chris D. North, Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code).
 
 *
    
    Incorporated by reference as indicated. 37




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##### Table of Contents



HYDRIL COMPANYDate: August 5, 2005
    
    By:
    
    /s/ Chris D. NorthChris D. NorthChief Financial Officer (Authorized officer and principal accounting and financial officer)
 38




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##### Table of Contents



10.1
    
    
    
    Form of Restricted Stock Unit Agreement (Performance-Based) for Employees
under the Hydril Company 2000 Incentive Plan.10.2*
    
    
    
    Hydril Company 2005 Incentive Plan (incorporated by reference to Annex A
to our Definitive Proxy Statement on Schedule 14A filed with the Securities and
Exchange Commission on April 8, 2005).10.3*
    
    
    
    Form of Deferred Share Unit Award Agreement between Hydril and
Non-employee Directors (incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed with the Securities and Exchange Commission on May
23, 2005).10.4*
    
    
    
    Description of Changes in Director Compensation (incorporated by reference
to the Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 23, 2005).10.5*
    
    
    
    Form of Change in Control Renewal Agreement for Executive Officers
(through December 31, 2005) (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 1, 2005).31.1
    
    
    
    Certification by Christopher T. Seaver, Chief Executive Officer, pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 1934.31.2
    
    
    
    Certification by Chris D. North, Chief Financial Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.32.1
    
    
    
    Certification by Christopher T. Seaver, Chief Executive Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and (b) of Section
1350, Chapter 63 of Title 18, United States Code).32.2
    
    
    
    Certification by Chris D. North, Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code).
 
 *
    
    Incorporated by reference as indicated. 39